Amazon spat with publishers to escalate as contracts end

In this Monday, Dec. 2, 2013, file photo, an Amazon.com employee stocks products along one of the many miles of aisles at an Amazon.com Fulfillment Center in Phoenix.

NEW YORK - Amazon.com's sales contracts with some of the world's biggest publishers, Simon & Schuster and HarperCollins, are next up for renewal, signaling that skirmishes over e-book pricing are set to spread.

The world's largest online retailer is already feuding with Hachette Book Group and Bonnier Media. CBS' Simon & Schuster and News Corp.'s HarperCollins will soon come up for renegotiation, according to people familiar with the matter, who asked not to be named because the contracts are private. That means best-selling authors such as HarperCollins' Veronica Roth, writer of the Divergent trilogy, and Simon & Schuster's Michael Lewis could be entangled in the controversy.

Hachette's tussle will determine whether publishers can gain leverage against Amazon, the biggest seller of e-books, at a time when demand for digital tomes is surging and physical books are losing ground. Amazon is seeking a bigger cut of the retail price of a title so it can continue discounting e-books and boost margins, three people said. To ratchet up the pressure on Hachette, Amazon started blocking some book pre-orders and delaying shipments - affecting titles such as "The Silkworm," J.K. Rowling's new novel written under a pseudonym.

"It's a measure of their confidence that they are doing this," Roxana Robinson, head of the Authors Guild, a New York- based nonprofit that represents writers, said of Amazon. "It demonstrates that they feel they have the dominant market position."

Amazon commands 60 percent of the e-books market, according to Forrester Research Inc. While physical book sales in the U.S. are projected to fall to $19.5 billion this year from $26 billion in 2010, e-book sales are expected to jump more than eightfold to $8.7 billion, Forrester estimates.

Amazon and Hachette started negotiating as early as January, one person said. The disagreement spilled into public view last month when Amazon tried to dissuade its customers from buying Hachette titles on its website, removing discounts from some books or delaying shipments by as much as five weeks when items typically ship within three to five days. By refusing to buckle under the pressure, Hachette is leading the charge for publishers' fight against Amazon.

Amazon has said it's acting "on behalf of customers."

"Negotiating for acceptable terms is an essential business practice that is critical to keeping service and value high for customers in the medium and long term," Amazon said in an online post last week.

The tactics have hurt Hachette, the publisher of mass- market powerhouses like James Patterson and literary heavyweights like Donna Tartt. A few weeks into Amazon's campaign, Hachette relinquished its No. 1 spot on the Digital Book World bestseller list, a palpable sign of Amazon's dominance in the publishing industry.

Many authors have been caught in the middle.

Amazon, for its part, made an offer to Hachette to fund 50 percent of an author pool to mitigate the impact on writer royalties. Authors typically receive 25 percent of the publisher's take on sales. If Amazon succeeds in getting a larger percentage of the retail price, that could mean lower fees for authors.

Douglas Preston, a Santa Fe, New Mexico-based author of best-selling thrillers such as "White Fire," said he feels "betrayed" by Amazon after having supported the online retailer even as its growing power raised alarm bells. Some of his books now face shipment delays and higher prices because they are published by Hachette.

"I've supported Amazon from the time it was a struggling startup," Preston said in an interview. "I feel betrayed personally by this company, now that it's become one of the largest corporations in the world, that it would do this to me."

Amazon is pushing for a bigger piece of e-book revenue amid pressure from investors to boost profit margins. For every dollar in revenue, Amazon makes less than a penny as Chief Executive Officer Jeff Bezos invests in fulfillment warehouses, same-day shipping and new gadgets like its Fire TV Internet streaming set-top box.

Other retailers, meanwhile, are seeking to take advantage of the spat by winning over publishers and book buyers. Wal-Mart Stores Inc. said last week that its physical book sales on Walmart.com have climbed 70 percent. The website has been running a promotion at the top of the page for 40 percent off select books from Patterson and Nicholas Sparks.

The dispute stems from a Justice Department investigation into Hachette and four other U.S. book publishers that was settled in 2012 and 2013. The government charged the publishers with colluding with Apple Inc. to set prices of e- books, thus stifling competition.

Hachette, HarperCollins, Simon & Schuster, Verlagsgruppe Georg von Holtzbrinck GmbH's Macmillan unit and Pearson Plc's Penguin Group all consented to change their pricing policies as part of the settlement.

Also as part of the settlement, Hachette, like the other publishers, had to tear up its contract with Amazon and create a new agreement giving the retailer the right to discount book prices, a core element of the government's case.

The length of Hachette's contract with Amazon, negotiated at the end of 2012, was for 18 months, according to two people familiar with the matter. Hachette's agreement is the first to expire, with Simon & Schuster and HarperCollins following soon thereafter, the people said.

Random House, owned by German media conglomerate Bertelsmann, wasn't part of the suit and had been operating under a different arrangement with Amazon. Since then, Penguin has merged with Random House, and the new company is called Penguin Random House.

Representatives for Amazon, Hachette, Simon & Schuster, HarperCollins, Penguin Random House and Macmillan declined to comment on their contracts with Amazon.